Executive Summary: Key Legal and Evidentiary Issues

• Whether Valerie and Nicole Clancy’s actions constituted oppression or unfair disregard of Jim Clancy and ICECL’s interests as shareholders.

• Interpretation and enforcement of the contractual relationship and non-compete agreement between ICEM and ICEW, including territorial sales and manufacturing rights.

• Assessment of whether ICEM breached its agreement with ICEW regarding delivery delays, supply of parts, and notice of closure.

• Evaluation of ICEW’s conduct for passing off, copyright infringement, and use of ICEM’s intellectual property and logo.

• Calculation and entitlement to unpaid accounts receivable between ICEW and ICEM, including the legitimacy of disputed amounts.

• Quantification of damages and appropriate remedies for oppression, intellectual property infringement, and outstanding debts.

Background and facts of the case

This action arises from a dispute between ICE Western Sales Ltd. (“ICEW”) and Industrial Commercial Equipment Manufacturing Ltd. (“ICEM”), as well as the principals of both companies, primarily Jim Clancy (“Jim”), Nicole Clancy (“Nicole”), and Valerie Clancy (“Valerie”), in the context of a closely held family business. As of 2019, Valerie was mentally incompetent and incapable of managing her own financial affairs, with Ronald Ade managing her affairs as litigation guardian. The litigation began in January 2016, when ICEM filed a claim against ICEW and Jim for wrongful competition, passing off, and copyright infringement. ICEW and Jim filed a statement of defence and counterclaim, and Jim and his corporation, Industrial Custom Equipment & Construction Limited (“ICECL”), filed an oppression application. The current litigation consolidated these proceedings and a further action brought by ICECL, ICEW, and Jim in late 2018 involving related subject matter.

ICEM was a manufacturer of heating, cooling, and filtration (HVAC) units from 1987 to the fall of 2016. ICEW was one of the distributors for units manufactured by ICEM at its Winnipeg facility, with ICEW’s territory being Southern Alberta and British Columbia. ICEW began adding direct integrated cooling at a manufacturing plant in Calgary to units built by ICEM. Jim is the sole shareholder of ICEW. Redboine Sheet Metal Industries Limited (“Redboine”) owns 100% of the shares of ICEM. Valerie owned voting control over Redboine and ICEM. The three children of Frank Clancy (“Frank”) and Valerie—Jim, Sean Clancy (“Sean”), and Nicole—at one time each owned 100 common shares in Redboine, either directly or through a holding company. Sean ceased to be a shareholder in late 2016. Jim and Nicole continue to hold their shares in Redboine through ICECL and 6348255 Manitoba Ltd., respectively.

Frank passed away in July 2008. After his death, Valerie became the sole officer, director, and controlling shareholder of ICEM and Redboine. All three children were employed by ICEM at various times. At one time, ICEM had a division, Frost Fighter, manufacturing portable construction heaters. Nicole was the General Manager of the Frost Fighter division and is currently the President of Frost Fighter Inc. The Frost Fighter division was sold in 2011 for $21 million, with the proceeds distributed among Jim, Nicole, and Sean in the amount of $7 million each.

A non-competition agreement (“Non-Compete”) dated November 30, 2005, was signed by ICEW and Jim, limiting ICEW’s production activities to the addition of cooling components to units manufactured by ICEM in Winnipeg. The Non-Compete provided that ICEW would not be directly or indirectly involved in the manufacture of any ICEM catalogued equipment except for the piping of dx coils to condensing units and the mounting and wiring of said condensing units. The agreement also allowed ICEW to use the word “ICE” only as part of the full corporate name “ICE (WESTERN) LTD.”

Multiple attempts were made to sell ICEM to Jim, including a Memorandum of Settlement executed in June 2015 for Jim to buy out Nicole and Sean for $3.774 million. Jim chose not to close the transaction, and the sale did not proceed. In August 2016, a decision was made to cease operations at ICEM due to financial losses, expiring lease, and union contract costs. Notice of ICEM’s closure was provided to all distributors, including ICEW, on August 19, 2016.

Discussion of policy terms and contractual clauses at issue

The 2005 Non-Compete agreement prohibited ICEW from manufacturing ICEM catalogue equipment except for integrating cooling systems and restricted sales to ICEW’s designated territory unless otherwise negotiated. The agreement also limited ICEW’s use of the “ICE” name. The court found that the parties’ course of conduct reinforced these terms, with ICEW not permitted to manufacture standard ICEM units or sell outside its territory without agreement.

Key issues and analysis

The court addressed the following issues:

• Oppression claim: Jim and ICECL alleged that Valerie and Nicole unfairly disregarded Jim’s interests as a shareholder. The court found no oppression except in relation to the sale of assets of ICEM to Sean, where Jim had a reasonable expectation to be informed and allowed to participate. The court fixed compensation at $350,000.00 for this failure, considering the absence of a valuation of the assets and Jim’s previous opportunities to acquire ICEM.

• Contractual claims: The court found that the agreement between ICEM and ICEW was based on mutual benefit and non-competition, with ICEW allowed to add cooling to ICEM units but not manufacture standard units or sell outside its territory without agreement. ICEM was not found to have breached the agreement regarding delivery delays, supply of parts, or notice of closure, as these were handled consistently with industry practice and applied evenly to all distributors.

• Passing off and copyright infringement: ICEW was found to have used ICEM’s logo and intellectual property without consent, causing confusion among customers and damaging ICEM’s goodwill. Specific instances included projects where ICEW manufactured units using ICEM’s job numbers, logos, and engineering drawings, leading customers to contact ICEM for support on units it did not manufacture. The court awarded $20,000.00 in general damages for passing off and $40,000.00 in statutory damages for copyright infringement on two projects.

• Accounts receivable: The court accepted that as of January 23, 2019, ICEW owed ICEM $494,437.54 in unpaid accounts, except for amounts relating to two cancelled projects totaling $46,293.53. Prejudgment interest was allowed on the net amount.

Outcome and ruling

The court allowed the plaintiffs’ oppression claim in part, awarding Jim $350,000.00 for not being consulted on the sale of ICEM’s assets. All other oppression and contractual claims by the plaintiffs were dismissed. The defendants’ counterclaims for passing off, copyright infringement, and unpaid receivables were allowed, with monetary awards totaling $60,000.00 for intellectual property violations and the net receivable amount due. Costs were left to be determined if not agreed upon. The successful parties on the counterclaims were ICEM and its affiliates, while Jim and ICECL received a limited award for the oppression aspect only. The exact amount for costs and the final total monetary award (including interest) was not specified and would be determined separately if not resolved by the parties.